Saudis, UAE pledge $8.7b in aid for Egypt

Saudi Arabia and the United Arab Emirates, which took two hours to welcome the military-backed ouster of Islamists in Egypt, have pledged $US8 billion ($A8.7 billion) in aid to the Arab world's most populous nation.

The UAE package includes a $US1 billion grant and a $US2 billion interest-free deposit with the Egyptian central bank, the official WAM news agency said Tuesday.

The aid "will alleviate concerns over the external position over the transition," Jean-Michel Saliba, London-based economist at Bank of America Merrill Lynch, said. "We suggested they needed $US2 billion to $US3 billion to keep reserves flat over the coming interim period, so UAE support is in line with our expectations."

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Three days after being sworn in as Egypt's interim president to succeed Mohamed Mursi, Adly Mansour dispatched Central Bank Governor Hisham Ramez to the UAE for talks, stoking speculation an aid package from the second-biggest Arab economy would follow. The support reflects the unease with the Muslim Brotherhood, which has inspired similar Islamist movements across the region, including the Persian Gulf.

"We can expect that there will be more investment from Saudi Arabia and the UAE, who were hesitant because of the Muslim Brotherhood beforehand," said Emad Mostaque, a London-based strategist at Noah Capital Markets EMEA.

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Egypt's interim leaders inherit a divided nation and an economy stuck in the worst slowdown in two decades.

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The generals forced Mursi out of office after months of discontent with his leadership came to a head in protests. Hundreds of thousands took to the streets to demand he step down, accusing him of betraying the 2011 revolution that toppled Hosni Mubarak by grabbing power for his Islamist backers and exacerbating Egypt's economic plight.

Mursi blamed the nation's crisis on near-daily protests and dared the opposition to challenge him in elections.

Egypt's foreign reserves declined $US1.1 billion in June to $US14.9 billion, largely due to the annual re-evaluation of the country's gold holdings, according to central bank data. The reserves have plunged about 60 percent since 2011.

Rating cuts

Egypt's credit rating was cut July 5 by Fitch Ratings on concern that the ouster of Mursi will fan political unrest. Fitch's rating gives Egypt the same classification as Greece, Cyprus and Ecuador, according to data compiled by Bloomberg.

We strongly shake hands with the men of all the armed forces

"Aid from Saudi Arabia and the UAE will support the balance of payments and will help boost reserves," said Raza Agha, chief Middle East and Africa economist at VTB Capital in London. "Higher reserves should be positive for markets."

Saudi Arabia, the world's largest oil exporter, and the UAE have watched with concern as Islamic political parties were swept into power after popular uprisings in 2011. Lack of trust in Mursi and the Muslim Brotherhood hindered the relationship with the two countries, said Khalid al-Dakhil, a politics professor at King Saud University in Riyadh.

"The Saudis weren't sure what to make of Mursi," he said in a phone interview. "He would say one thing, then the next day he would say something else. They weren't willing to trust him, not just because of the way he conducted himself, but the period he was in power was also too short."

Saudi Arabia extended almost $US4 billion in aid to Egypt's military body that ruled the country until Mursi's election a year ago. The UAE pledged $US3 billion in 2011, though Egyptian officials said the money was never given.

The UAE has cracked down on its own Islamist groups. It sentenced 69 people to jail for establishing secret cells to seize power, according to a federal court judgment cited by the state-run news agency WAM on July 2.

The verdict "shows the antipathy of the UAE toward the Muslim Brotherhood idea," said Mostaque.

In April, Qatar offered $US3 billion in financial assistance in addition to the earlier package of $US5 billion in deposits and grants to help give politicians time as they negotiate a $US4.8 billion International Monetary Fund loan.

Qatar said it was still ready to support Egypt after Mursi's ouster, according to Doha-based Al-Jazeera television. The government condemned the violence Monday and urged self-restraint, the state-run QNA news agency reported.

The UAE and Saudi Arabia were more emphatic in their support of the Egyptian military. Defense Minister Gen. Abdel-Fattah el-Sissi announced the temporary suspension of the constitution at 9:10 pm, Cairo time. The UAE issued a response by 10:04 p.m. and Riyadh followed about an hour later.

The UAE Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan said the Egyptian army was a "strong shield and protector," according to the official news agency WAM. "We strongly shake hands with the men of all the armed forces, who managed to save Egypt at this critical moment from a dark tunnel," Saudi's King Abdullah said in a statement.

"For the Saudis, the change also shows that the Brotherhood is a failed experiment in Egypt," Theodore Karasik, director of research at the Institute for Near East and Gulf Military Analysis in Dubai, said in a phone interview. "The don't want to see the Muslim Brotherhood succeed."

Egypt has about 169 billion pounds ($US26 billion) of local-currency debt repayments this quarter, a record, according to data compiled by Bloomberg. The cost to protect the country's US dollar debt against default jumped 30 basis basis points today to 805 basis points, the highest in the region.

"Egypt's economy is still in crisis and assistance will be very critical going forward," Shadi Hamid at the Brookings Doha Center, said by phone on July 6. "Saudi Arabia and the UAE definitely want to step in and gain leverage and influence the new government. That's very important for them geopolitically to isolate the Muslim Brotherhood."